RBI Curtails Temporary Interest Rate Relaxation on Non-Resident Deposits for Local Area Banks

The central banking authority has officially promulgated the Reserve Bank of India (Local Area Banks – Interest Rate on Deposits) Third Amendment Directions, 2026. Issued on August 25, 2026, via notification reference RBI/2026-27/245 (DOR.SOG(SPE).REC.215/13.03.00/2026-27), this crucial regulatory update significantly alters the operational window for previously granted interest rate relaxations on specific non-resident bank accounts managed by Local Area Banks.

The primary objective of this amendment is to shorten the timeframe of a temporary concession that allowed banks to offer unrestricted interest rates on particular foreign exchange deposits, impacting how a non-resident assessee might plan their financial investments in India.

Background of the Interest Rate Concessions

To understand the impact of the latest notification, it is essential to trace the regulatory lineage back to the Reserve Bank of India (Local Area Banks – Interest Rate on Deposits) Directions, 2025, initially issued on November 28, 2025.